No, it is more or less in line with our expectations for the simple reason that there is a global slowdown, there is a slowdown in the country. A lot of primary articles across the world, like natural rubber, coffee, and even sugar prices on the domestic front, they are all hitting either six-month low or two-year low. Also, the base effect will play.

In the last three years, the base index of WPI has gone up almost by 26%. One need not keep worrying too much about inflation. It is going to be a thing of past in the next three to four months for just two reasons: global and India's economic slowdown plus the base effect which will help us get out of this high interest rate cycle. In 2013, we will see the reversal of interest rate cycle in a significant way and that will be partly beneficial for the equity market.

What you make of the market momentum at this point in time and a word on the Bank Nifty as well?

Market momentum will gain. We will hit record high before 31 March. The next trigger will come from the falling inflation and interest rate cycle. The banking sector will be on the forefront of capitalising this reversal. In the next 3 to 4 months, around 5% to 10% upside can be seen in the Nifty and particularly the private banks, which are very efficient in managing the assets, will outperform.

Perhaps this is the last of the ugly indicators of inflation. Not that it has been a bad number, given the fact that you will have the base effect which will kick in in January as well as March and that is why we may perhaps get better numbers and the December inflation number is likely to flatten out completely.

Definitely, as I said, the base effect will play out. It has gone up by 26% if you take Jan 2010 as the base of WPI index. Let us not go overboard about 8% IIP growth. India is known for such monthly fluctuations, wide fluctuations. The cumulative number, if you look at, is still 1.2% growth for April to October. When the key repo rate has come down only by 50 bps from the peak, we have already seen about 190 bps fall in the inflation rate.

It is high time that RBI cuts the benchmark rate. 5 to 6 large industrial houses are sitting on huge debt and they are going through problems outside the country as well. To recover the economy as well as to give some comfort zone to the Indian industrialists, this is high time the RBI cuts interest rates in December itself. If they fail, they would definitely start cutting rates from Jan onwards and you would have the inflation rate around 6.5% in the Jan to March quarter. We cannot go back to 5% of the comfort zone of RBI at the lower end. We will have to content and live with around 6-6.5% inflation for maybe next 1 to 3 years.

Â

Is it perhaps too early to ascertain that the Indian economy is out of the woods because as long as the GDP growth story is led by consumption demand and not by investment demand, the slowdown is not likely to reverse?

Partly it is a function of slowdown in capital goods and also a function of peak interest rate cycle which we have seen. The government is taking some steps on the investment cycle. It has already asked all the oil PSUs particularly to spend more than 1 lakh crore on capex overall. That should be the beginning of recovery in the investment cycle. The interest rate cycle also should reverse significantly from Jan onwards. That should also give the required boost.

The whole world is not worrying about the recession. We have seen Japan economy de-growing by 3.5% and the entire Eurozone either de-growing or growing by 0.1%. We are the only one in the island talking about inflation and this is the mistake we have done even post Lehman. Our inflation rate became negative. So too much of concern is to be given to growth, not to the inflation just because the entire world is going through the contraction of growth.

I remain very firm even on the growth front and this 5.3% growth has happened despite monsoon being a washout in the 4 to 5 major crop growing states. With reversal of the interest rate cycle and government push on investment cycle starting from the PSUs, we should see much better growth prospects from the Jan-March quarter onwards and that would give a lot of upside momentum to the equity market in the first half of 2013.

What is happening with the Bank Nifty as well as the PSU banking lot? Given that it is near consensus to the turnaround in the rate cut cycle, do you think taking positions in any of these banking news would be an obvious one? You could be looking at some of the derivative sectors possibly like autos or real estate, should one be looking at investing in that pocket given the inflation numbers?